Russia is suffering, that much is clear. After two years of dramatically lower oil prices and western sanctions the economy is shrinking, the fiscal deficit is growing and the budget gap is becoming increasingly hard to plug.
Russia is fortunate that its professional central bank has played a key role in stabilising the macroeconomic picture. But still one in seven people – that is, 20m — live under the poverty line, effectively eliminating a decade of economic growth. Since July 2014, the rouble has devalued by more than 50 per cent. Inflation continues to hover around 7 per cent. And the Russian economy ministry itself predicts that that real incomes will fall by 4 per cent this year alone. Read more
News that Ikea is rolling out an online shopping platform in China – its first in the Asia-Pacific region – could be a sign that Western retailers are at last reacting to rising costs and shifts in consumer shopping behaviour. But what has taken them so long?
Despite operating online models successfully in the UK and other parts of Northern Europe, it has taken Ikea seven years to get to a similar point in China. With stores in major cities including Shanghai and Beijing, Ikea has followed a similar strategy to many other Western retailers; investing in bricks and mortar outlets in China’s thriving tier 1 and 2 cities.
However, consumer demand has been growing right across China and while rising costs remain an issue, Western retailers urgently need a strategy to develop this market potential. Read more
The Yangon Stock Exchange, reactivated several months ago after the civilian government headed by Nobel laureate Aung San Suu Kyi took office, now has a handful of listings like neighbours Cambodia and Laos, where Japanese ownership and technical assistance were also instrumental in startups.
Myanmar’s political transition has already departed from the other two countries’ model of single-party authoritarian rule despite regular elections, but the economic paths overlap. Investors remain wary of heavy state control and direction as they await elaboration of the majority National League for Democracy’s modernisation and stabilisation platform and implementation steps. Foreign buyers have not yet been permitted, despite urging from bilateral and multilateral donors and Japan’s Daiwa Securities, involved in stock market efforts for two decades. Without bolder vision, early enthusiasm for a new frontier destination will wane, repeating the next-door pattern. Read more
As anyone who reads these pages knows, China’s growth has slowed and its economy is, little by little, rebalancing away from investment and towards consumption. Yet many are also left scratching their heads by news that sales of a wide range of consumer products, from luxury cars to cheap local beer, are so sluggish. If consumption is so strong, why can’t we see it? The answer is simple: people are looking in the wrong places. Both high-end and low-end retail are faring poorly. But look at the middle tier, and the story could scarcely be more different. This is where the consumption boom is unfolding.
Start with the luxury segment. Its best days could well be over. Luxury consumption is slowing, weighed down by a decelerating economy, the ongoing crackdown on corruption and the ‘commodification’ of luxury goods — that is, the idea that Chinese buyers no longer see them as so special or unique. China’s luxury spending contracted for the very first time in 2014. This was just the tipping point. In 2015, Swiss watch exports to Hong Kong, a bellwether of Chinese luxury buying, fell 23 per cent. The sales of Rolls-Royce cars tumbled 54 per cent in China that same year. Read more
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After months of speculation, the race to become the next UN Secretary-General has reached the point at which support for the official contenders is being tested where it really counts. Two rounds of straw balloting, in which countries are invited to “encourage” or “discourage” the candidacy of each nominee, have already been held by the Security Council. Another is scheduled for next week. Perhaps surprisingly, at a time when the UN is under pressure to appoint its first woman head and recognise the principle of regional rotation by giving priority to candidates from eastern Europe, the apparent frontrunner is neither a woman nor from eastern Europe. He is Antonio Guterres, the former prime minister of Portugal who completed his second term as UN High Commissioner for Refugees last year. Read more
By Chandran Nair, Global Institute for Tomorrow
At a recent World Economic Forum in Kuala Lumpur, the opening panel was invited to debate one of the leitmotifs of our age – the way in which technology and digital disruption are reshaping destinies in the Southeast Asian region.
Guided by the anchor of a global media channel, the panelists dutifully paid homage to this new religion and its scriptures. There were no questions about what the region’s biggest challenges are, how we got here in the first place, no questioning of the mindless activities that have sprung from the internet, no alternatives that did not involve “the cloud”.
The only worry about the future they discussed was the threat of cybercrime. They did not ask how many passwords are we going to need to protect our bank accounts and our data from the rewarding world of cybercrime, nor how children could be protected from the effects of on-demand pornography, nor who will buy the things made by robots when there are no more jobs to speak of. Read more
When it comes to containing Vladimir Putin’s aggressive posture in Eastern Europe, the conventional wisdom advises strengthening NATO, diversifying Europe’s energy sources, and combating the Kremlin’s propaganda.
There is nothing wrong with any of these recommendations. Yet few things would be as effective in weakening Mr Putin as positive examples of countries in Russia’s immediate neighborhood that have liberated themselves from the shackles of domestic oligarchy and the Kremlin’s influence, and become a success story.
At the moment, only one country has the potential to do that: Ukraine. That is why its economic and political success is not just a matter of a “far-away country” and “people of whom we know nothing,” as Neville Chamberlain used to say about Czechoslovakia. Instead, Ukraine’s success is in the West’s immediate interest. Read more
By Dorthe Fredsgaard Nielsen, GAM
This year began with a rather pessimistic macroeconomic backdrop for emerging market (EM) countries, influenced mainly by deflating of the global commodity bubble, China’s seemingly endless malaise and growing geopolitical risks.
From a micro-economic perspective, the picture was just as bleak. Since the end of the financial crisis, EM corporates had been increasing their debt loads to fund future growth in anticipation of continued strong pricing power and high growth rates. However, both pricing power and profitability were lower than expected, leaving many companies, particularly in the mining and energy sectors, highly leveraged.
This is now stabilising. Balance sheets of EM corporates look much healthier than those of their US counterparts and the strength differential is likely to increase further as US companies continue to add to their debt (figure 1). Read more
By Anthony Chan, Brad Gibson, Jenny Zeng, AllianceBernstein
Issues coming to a head in China’s corporate sector require its government to decide how much freedom to allow the markets and private business. The risk? That policymakers will duck the issues, leaving the economy to drift.
Let’s take a deeper dive into three notable developments that serve as a guide to the direction of China’s economy and its reform agenda.
Dongbei Special Steel (DSS)— a steelmaker majority-owned by the Liaoning provincial government— recently defaulted on a Rmb64.4m ($9.6m) interest payment on a privately placed Rmb870m bond issue. DSS is a serial offender: the company has defaulted on seven bonds, totaling Rmb4.8bn in principal. Read more
By Kevin P. Gallagher, Boston University
The Western-backed Multilateral Development Banks (MDBs) are talking a lot about moving ‘from billions to trillions’ of dollars to meet the Sustainable Development Goals (SDGs) and Paris Climate Agreement that aim to shift the world economy to a low-carbon and more socially inclusive and equitable future.
The MDBs talk the talk but do not walk the walk given that they have not increased their paid-in capital to meet the ambitious goals of the SDGs. By contrast, China’s development banks have been doing the walking—but not quite in the right direction. As it hosts the G-20 in September, China is poised to match words and action on sustainable development. Read more
Indonesian President Joko Widodo is pushing to speed up infrastructure investment after pledging to build roads, railways and ports to support growth.
He is hampered by one of the weakest tax takes in the Association of Southeast Asian Nations and a fiscal deficit that is dangerously close to Indonesia’s ceiling of 3 per cent of gross domestic product.
Disappointing tax collection, exacerbated by weak commodity prices, has been a significant factor in the deterioration of Indonesia’s public finances. Infrastructure investment, meanwhile, has trailed economic expansion since the Asian financial crisis in 1997-98, resulting in expensive business disruption and high logistical costs. Read more
By Raffaello Pantucci and Anna Sophia Young
The vast Chinese northwestern frontier region of Xinjiang may serve as a useful early indicator of how Beijing’s much-touted “Belt and Road Initiative” (BRI) is supposed to work – and how successful it may become.
The region, which is home to several muslim minority peoples, has been wracked by ethnic turmoil for decades, prompting Beijing to seek to nurture social stability by driving economic development through hefty investments.
But for this strategy to gain traction, Beijing realised that it needed to boost development in the region around Xinjiang by building commercial corridors to neighbouring Central Asian countries such as Kazakhstan, Tajikistan, Kyrgyzstan, Uzbekistan and Turkmenistan. Thus, Xinjiang was key motivator behind the BRI concept. Read more
At the tip of the teardrop of India, as Sri Lanka is often described, lies the Thalsevana Holiday Resort. From here you could once walk to India over 30 miles of limestone shoals.
Long since washed over by the Palk Strait, its silver shoreline and turquoise waters make this an idyllic spot to contemplate the passage of time. In an area ravaged by nearly three decades of civil war, the first green shoots of tourism and economic regeneration are starting to appear. Read more
A century from now, will students of world history agree that the norms of 20th Century global finance were turned on their head early in the 21st Century?
The most obvious evidence of this is in bond markets, where some 30 per cent of the global issuance of sovereign bonds have negative yields. The bond markets of most of the eurozone, Denmark, Sweden and Japan are in negative territory. Indeed the entire Swiss bond market is now underwater. Read more
The Rio Olympics that begin today will be the first games where 4G networks are available – one area where Rio is delivering on its Olympic promise. This is an opportunity for the city to showcase its technological progress to visitors from around the world, while benefiting from the international exposure of visitors’ images and videos on social channels, helping boost tourism even after the games.
Even with one in seven Olympic tickets yet to be sold, operators are expecting a 50 per cent increase in data traffic at the Rio games compared with London 2012. Handily, Rio benefits from having hosted the 2014 World Cup, and the infrastructure that was put in place then. On top of this there will be 8,600 free-to-access WiFi hotspots near key events, supported by some of the network operators and by corporate sponsors. Read more
A hundred years from now, will students learning 21st Century history be taught that the Brexit vote – which saw an already sceptical Britain decidedly turn its back on the dream of a United States of Europe – was a watershed event, part of the West at large turning its back on its 200 year-long role of being the global economy’s star player, exiting that stage and leaving it to new actors from the emerging Rest?
And will those students of tomorrow also learn that, irony of ironies, Britain, the original architect of the liberal democratic capitalist house, having ruled the waves of free-flowing global trade and capital for much the 18th and 19th Centuries before amicably passing the baton onto the US in the 20th, then became the first major Western nation to waive those rules in the 21st? Read more
How should we read Russia, and Vladimir Putin’s game plan with respect to the US, the west and Ukraine?
My own view is that Putin is in waiting mode, reflected by the fact that Russia has stepped back from further military intervention in Ukraine and seems to be adopting a holding pattern in Syria. In both conflicts Russia would likely have to commit significant military resources to ensure delivery on its strategic objectives, and this side of elections to the Duma (September 2016) and perhaps also the presidency (March 2018) this just presents too many risks. Read more
Liao Min, China Banking Regulatory Commission
Amid increasing concern about risks in China’s banking sector, the latest banking data from Shanghai tells a story of resilience. The region’s non-performing loan (NPL) ration has declined for eight consecutive months to 0.79 per cent at the end of June, much lower than the 1.81 per cent ratio for China’s commercial banks as a whole. Outstanding NPLs shrank by Rmb3.6bn since the beginning of 2016.
Special-mention loans — a classification for loans that might be at risk of becoming NPLs — also decreased in Shanghai, both in volume terms and as a ratio of total loans. Thus, it’s clear that NPL figures aren’t being manipulated by hiding bad loans in the special-mention category.
Kevin Martin, HSBC
Don’t underestimate the Asean consumer.
Yes, there are only about half as many of them as there are in China or India. And the typical shopper in the ten-member Association of South East Asian Nationsis not as wealthy as Mr. or Ms. Europe.
But as a whole, Asean’s 620m-plus inhabitants are an increasingly powerful source of global demand, and a potential game-changer for companies that are looking for growth in a tough and uncertain global environment.
Mr. and Ms.Asean have come a long way in a short time. Read more
By Renata Legierska, Alaco
Over the past five years, few other countries have experienced the highs and lows of the global economy as acutely as Mongolia. In 2011 the country was on the radar of virtually every investor interested in Asian emerging markets.
The International Monetary Fund (IMF) estimated that Mongolia’s GDP would grow by 17.5 per cent that year – largely on the back of the Oyu Tolgoi (OT) project, a gigantic copper and gold mine operated by Rio Tinto – and continue at 14 per cent through 2016.
The mining boom spurred growth in several other sectors, including financial services and construction. By 2012 Ulaanbaatar was a booming town with rapidly rising skyscrapers and a growing expat community. The atmosphere was intoxicating. Read more